Reforms announced at the Budget will help raise money to fix the public finances while ‘protecting small family farms from unfairly high inheritance tax’ the government has announced.
The Treasury has said that the government is ‘committed to supporting farmers and rural communities, including helping families to pass their land on to the next generation’.
At Autumn Budget the Chancellor announced that agricultural property relief (APR) and business property relief (BPR) will be reformed.
Agricultural property relief (APR) is a type of inheritance tax relief. It reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation.
Business property relief (BPR) is similar, but for business assets that are part of the estate.
From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1 million of combined agricultural and business property.
Above this amount, landowners will access 50% relief from inheritance tax and will pay inheritance tax at a reduced effective rate up to 20%, rather than the standard 40%. This tax can be paid in instalments over 10 years interest free, rather than immediately, as with other types of inheritance tax.
This is on top of all the other spousal exemptions and nil-rate bands that people can access for inheritance tax too. This means that two people with farmland, depending on their circumstances, can pass on up to £3 million without paying any inheritance tax.
This is an assumption based on the £1 million limit and nil-rate bands and does not take into consideration the specific circumstances that may affect the tax calculation.
Two people who jointly own a farm will be able to pass on land and property valued up to £3 million to a child or grandchild tax free. That is made up of £1 million, where they combine their standard £500,000 tax-free allowances (£325,000 for nil-rate band + £175,000 for residence nil-rate band), and on top of that, an additional £1 million tax-free allowance each for agricultural property inheritance.
The government is better targeting these reliefs to make them fairer, protecting small family farms.
The latest figures show that the top seven per cent (the largest 117 claims) account for 40 per cent of the total value of agricultural property relief.
This costs the taxpayer £219 million. The top two per cent of claims (37 claims) account for 22 per cent of agricultural property relief, costing £119 million.
It is not fair for a very small number of claimants each year to claim such a significant amount of relief, when this money could better be used to fund our public services.
The reforms will apply from 6 April 2026. Most estates will not be affected by the changes.
Reforms to agricultural property relief are expected to affect the wealthiest 500 estates each year with smaller farms not affected by the changes. So that means almost three-quarters of estates claiming agricultural property relief, including those that also claim for business property relief, would not be affected by the changes, based on the latest available data.
Full exemptions for transfers between spouses and civil partners continue to apply. This means that any agricultural and business assets left to a spouse or civil partner will be tax free.
Following the death of a surviving spouse, an estate can pass on £1 million free of inheritance tax if they leave their residence to direct descendants. This includes children or grandchildren.
Any transfers to individuals more than seven years before death as gifts will continue to fall fully outside the scope of inheritance tax. The effective rate of tax paid on the gift tapers down from 3 years after the transfer depending on circumstances.
At the Budget, the Chancellor also announced £5 billion to help farmers produce food over the next 2 years – this is the largest amount ever allocated for sustainable food production.
This is alongside £60 million for the Farming Recovery Fund which will help farmers recover from the impact of flooding. We are also investing £208 million in protecting the nation from outbreaks of serious diseases that threaten our farming industry, food security and human health.
